First Business Financial Services, Inc 8-K, filed Oct 28, 2021
First Business Financial Services, Inc. (FBIZ)
8-K
2021-10-28
For: 2021-10-28
View Original
Added on
April 06, 2026
About this 8-K
First Business Financial Services, Inc filed this 8-K on October 28, 2021.
Items reported
- Item 2.02: Financial results
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 28, 2021
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (608 ) 238-8008
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |||||
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |||||
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |||||
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) | |||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b- 2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter). Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Item 2.02. Results of Operations and Financial Condition.
On October 28, 2021, First Business Financial Services, Inc. (the “Company”) announced its earnings for the quarter ended September 30, 2021. A copy of the Company’s press release containing this information is being “furnished” as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference.
The information in Item 2.02 of this Current Report on Form 8-K and Exhibit 99.1 attached hereto is being “furnished” and will not, except to the extent required by applicable law or regulation, be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor will any of such information or exhibits be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as expressly set forth by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibit is being “furnished” as part of this Current Report on Form 8-K:
| 99.1 | ||||||||
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| October 28, 2021 | FIRST BUSINESS FINANCIAL SERVICES, INC. | |||||||||||||||||||
| By: | /s/ Edward G. Sloane, Jr. | |||||||||||||||||||
| Name: | Edward G. Sloane, Jr. | |||||||||||||||||||
| Title: | Chief Financial Officer | |||||||||||||||||||
Exhibit 99.1
[FOR IMMEDIATE RELEASE]
First Business Financial Services, Inc.
401 Charmany Drive
Madison, WI 53719
FIRST BUSINESS BANK REPORTS STRONG THIRD QUARTER 2021 NET INCOME OF $9.2 MILLION
-- Continuation of positive trends including top line revenue growth, organic loan growth, and superior asset quality --
MADISON, Wis., October 28, 2021 (BUSINESS WIRE) -- First Business Financial Services, Inc. (the “Company”, the “Bank”, or “First Business Bank”) (Nasdaq:FBIZ) reported net income of $9.2 million, or $1.07 diluted earnings per share, in the third quarter 2021. Third quarter net income grew by 11.7% from $8.2 million, or $0.95 per share, in the second quarter of 2021 and more than doubled from $4.3 million, or $0.50, in the third quarter of 2020.
“First Business Bank’s excellent third quarter results include profitable top line revenue growth illustrating the strength and diversification of our fee generating businesses, net interest margin stability, and our team’s ability to organically grow commercial loans,” President and Chief Executive Officer Corey Chambas said. “Excluding PPP loans, we achieved another quarter of solid loan growth and our record pipelines continue to support our expectation for double-digit organic loan growth for full-year 2021 and 2022. As expected, our discipline around credit resulted in further improvement to our asset quality metrics, with nonperforming assets declining to just 0.29% of total assets, the lowest level since 2006. Our results were further supported by a loan loss provision benefit in the third quarter and, based on current economic trends, we continue to expect no meaningful provision in the fourth quarter and anticipate continued opportunities to release reserves in 2022.”
Quarterly Highlights
•Continued Loan Growth. Loans, excluding Paycheck Protection Program (“PPP”) loans, grew $36.0 million, or 7.1% annualized, from the second quarter of 2021 and $214.0 million, or 11.6%, from the third quarter of 2020, as the Company continued to expand specialized lending offerings for commercial clients and focus on growing our businesses across all products and geographies.
•Sustained Strong Revenue Growth. Driven by net interest margin stability and fee income growth, top line revenue, the sum of net interest income and non-interest income, grew to $28.2 million, up 8.5% from the third quarter of 2020. Third quarter 2021 non-interest income continued to reflect the strength and diversity of our fee income sources, including record revenue from private wealth management of $2.8 million on $2.7 billion in assets under management and administration for the period.
•Positive Asset Quality Trends. Non-performing assets (“NPAs”) declined 34.4% to $7.6 million, or 0.29% of total assets, marking the fourth consecutive quarterly reduction of more than 25%. NPAs made up 0.30% of total assets, excluding net PPP loans, improving by 12 and 131 basis points from June 30, 2021 and September 30, 2020, respectively.
•Compounding Tangible Book Value. Tangible Book Value (“TBV”) per share grew by 14% annualized in the quarter to $25.11, which is nearly double the long-term growth rate of 8%.
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Quarterly Financial Results
| (Unaudited) | As of and for the Three Months Ended | As of and for the Nine Months Ended | ||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, 2021 | June 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||
Net interest income | $ | 21,223 | $ | 21,652 | $ | 18,621 | $ | 63,738 | $ | 54,558 | ||||||||||||||||||||||
Adjusted non-interest income (1) | 7,015 | 6,292 | 7,408 | 20,502 | 20,145 | |||||||||||||||||||||||||||
Operating revenue (1) | 28,238 | 27,944 | 26,029 | 84,240 | 74,703 | |||||||||||||||||||||||||||
Operating expense (1) | 18,546 | 17,932 | 16,700 | 53,928 | 48,026 | |||||||||||||||||||||||||||
Pre-tax, pre-provision adjusted earnings (1) | 9,692 | 10,012 | 9,329 | 30,312 | 26,677 | |||||||||||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||||
| Provision for loan and lease losses | (2,269) | (958) | 3,835 | (5,295) | 12,487 | |||||||||||||||||||||||||||
| Net loss (gain) on foreclosed properties | 6 | (1) | (121) | 7 | 329 | |||||||||||||||||||||||||||
Amortization of other intangible assets | 7 | 8 | 9 | 23 | 27 | |||||||||||||||||||||||||||
| SBA recourse (benefit) provision | (69) | 245 | 57 | 45 | 53 | |||||||||||||||||||||||||||
| Impairment on tax credit investments | — | — | 113 | — | 2,066 | |||||||||||||||||||||||||||
Loss on early extinguishment of debt | — | — | — | — | 744 | |||||||||||||||||||||||||||
Add: | ||||||||||||||||||||||||||||||||
| Net gain (loss) on sale of securities | — | 29 | — | 29 | (4) | |||||||||||||||||||||||||||
Income before income tax expense | 12,017 | 10,747 | 5,436 | 35,561 | 10,967 | |||||||||||||||||||||||||||
| Income tax expense | 2,819 | 2,512 | 1,143 | 8,396 | 73 | |||||||||||||||||||||||||||
Net income | $ | 9,198 | $ | 8,235 | $ | 4,293 | $ | 27,165 | $ | 10,894 | ||||||||||||||||||||||
Earnings per share, diluted | $ | 1.07 | $ | 0.95 | $ | 0.50 | $ | 3.15 | $ | 1.27 | ||||||||||||||||||||||
| Book value per share | $ | 26.56 | $ | 25.70 | $ | 23.45 | $ | 26.56 | $ | 23.45 | ||||||||||||||||||||||
Tangible book value per share (1) | $ | 25.11 | $ | 24.28 | $ | 22.05 | $ | 25.11 | $ | 22.05 | ||||||||||||||||||||||
Net interest margin (2) | 3.45 | % | 3.49 | % | 3.14 | % | 3.46 | % | 3.30 | % | ||||||||||||||||||||||
Adjusted net interest margin (1)(2) | 3.22 | % | 3.20 | % | 3.24 | % | 3.21 | % | 3.29 | % | ||||||||||||||||||||||
Efficiency ratio (1) | 65.68 | % | 64.17 | % | 64.16 | % | 64.02 | % | 64.29 | % | ||||||||||||||||||||||
Return on average assets (2) | 1.41 | % | 1.26 | % | 0.68 | % | 1.39 | % | 0.62 | % | ||||||||||||||||||||||
Pre-tax, pre-provision adjusted return on average assets (1)(2) | 1.49 | % | 1.53 | % | 1.47 | % | 1.55 | % | 1.51 | % | ||||||||||||||||||||||
Return on average equity (2) | 16.39 | % | 15.09 | % | 8.58 | % | 16.63 | % | 7.49 | % | ||||||||||||||||||||||
Period-end loans and leases receivable | $ | 2,123,306 | $ | 2,143,561 | $ | 2,170,299 | $ | 2,123,306 | $ | 2,170,299 | ||||||||||||||||||||||
| Period-end loans and leases receivable, excluding net PPP loans | $ | 2,058,852 | $ | 2,022,839 | $ | 1,844,818 | $ | 2,058,852 | $ | 1,844,818 | ||||||||||||||||||||||
Average loans and leases receivable | $ | 2,131,099 | $ | 2,223,353 | $ | 2,139,439 | $ | 2,178,947 | $ | 1,952,785 | ||||||||||||||||||||||
Period-end in-market deposits | $ | 1,829,644 | $ | 2,016,215 | $ | 1,667,245 | $ | 1,829,644 | $ | 1,667,245 | ||||||||||||||||||||||
Average in-market deposits | $ | 1,810,948 | $ | 1,735,393 | $ | 1,644,704 | $ | 1,756,475 | $ | 1,527,561 | ||||||||||||||||||||||
Allowance for loan and lease losses | $ | 24,676 | $ | 25,675 | $ | 30,817 | $ | 24,676 | $ | 30,817 | ||||||||||||||||||||||
Non-performing assets | $ | 7,605 | $ | 11,601 | $ | 36,663 | $ | 7,605 | $ | 36,663 | ||||||||||||||||||||||
Allowance for loan and lease losses as a percent of total gross loans and leases | 1.16 | % | 1.20 | % | 1.41 | % | 1.16 | % | 1.41 | % | ||||||||||||||||||||||
| Allowance for loan and lease losses as a percent of total gross loans and leases, excluding net PPP loans | 1.20 | % | 1.27 | % | 1.67 | % | 1.20 | % | 1.67 | % | ||||||||||||||||||||||
Non-performing assets as a percent of total assets | 0.29 | % | 0.40 | % | 1.41 | % | 0.29 | % | 1.41 | % | ||||||||||||||||||||||
| Non-performing assets as a percent of total assets, excluding net PPP loans | 0.30 | % | 0.42 | % | 1.61 | % | 0.30 | % | 1.61 | % | ||||||||||||||||||||||
(1)This is a non-GAAP financial measure. Management believes these measures are meaningful because they reflect adjustments commonly made by management, investors, regulators, and analysts to evaluate financial performance, provide greater understanding of ongoing operations, and enhance comparability of results with prior periods. See the section titled Non-GAAP Reconciliations at the end of this release for a reconciliation of GAAP financial measures to non-GAAP financial measures.
(2)Calculation is annualized.
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Third Quarter 2021 Compared to Second Quarter 2021
Net interest income decreased $429,000, or 2.0%, to $21.2 million.
•Net interest income decreased primarily due to a reduction in fees in lieu of interest. Fees in lieu of interest, which can vary from quarter to quarter based on client-driven activity, totaled $2.8 million, compared to $3.5 million. Excluding fees in lieu of interest, net interest income increased $268,000, or 1.5%.
•Average loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $49.4 million, or 9.9% annualized, to $2.044 billion.
•The yield on average interest-earning assets decreased six basis points to 3.90% from 3.96%. Excluding average net PPP loans, the PPP loan interest income of $221,000, and the aforementioned fees in lieu of interest, the yield earned on average interest-earning assets decreased 11 basis points to 3.53% from 3.64%. The rate paid for average total bank funding decreased three basis point to 0.36% from 0.39%. Total bank funding is defined as total deposits plus Federal Home Loan Bank (“FHLB”) advances, and Federal Reserve Discount Window advances.
•Net interest margin decreased four basis points to 3.45% from 3.49%. Adjusted net interest margin was 3.22%, compared to 3.20% in the linked quarter. Adjusted net interest margin is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets such as excess liquidity and non-accrual loans.
The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a net benefit of $1.0 million in the second quarter.
•The decrease in the provision for loan and lease losses was primarily due to a $923,000 reduction in the general reserve from improving historical loss rates, $1.3 million in net recoveries, and a $451,000 decrease in specific reserves. These decreases were partially offset by a $426,000 increase in the general reserve due to loan growth.
Non-interest income increased $694,000, or 11.0%, to $7.0 million.
•Private wealth management fee income increased $15,000, or 0.5% to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $129.8 million, or 20.2% annualized, primarily due to growth from new and existing clients.
•Gains on sale of SBA loans decreased $482,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.
•During the third and second quarters of 2021 there was no commercial loan interest rate swap fee income. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter. Subsequent to September 30, 2021, the Company completed two commercial loan interest rate swap transactions which generated swap fees totaling $684,000.
•Other fee income increased $1.0 million to $1.9 million, compared to $835,000 in the second quarter, reflecting higher than typical returns from the Company’s investments in mezzanine funds.
Non-interest expense increased $306,000, or 1.7%, to $18.5 million. Operating expense increased $614,000, or 3.4%, to $18.5 million.
•Compensation expense, the largest component of the Company’s non-interest expense, increased $96,000, or 0.7%, to $13.4 million, primarily for performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.
•Other non-interest expense increased $543,000 to $719,000. Other non-interest expense for the second quarter of 2021 included a $206,000 and $78,000 benefit in the Company’s swap credit valuation and loan servicing impairment valuation, respectively. The remaining variance was generally attributable to higher travel costs.
Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $36.0 million, or 7.1% annualized, to $2.059 billion.
•Commercial and industrial (“C&I”) loans, excluding net PPP loans, increased $41.9 million, or 29.2% annualized, led by First Business Bank’s specialized lending commercial business lines. Management believes the timely prior-period investments in our specialized lending business lines, such as dealer floorplan financing, small-ticket equipment vendor financing, and accounts receivable financing, have positioned C&I lending to increase throughout the current economic cycle.
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•Commercial real estate (“CRE”) loans decreased by $4.3 million to $1.388 billion, compared to $1.392 billion, as new production was offset by payoffs and paydowns.
Total period-end in-market deposits decreased $186.6 million to $1.830 billion, compared to $2.016 billion, and the average rate paid decreased one basis point to 0.14%.
•As previously disclosed, in-market deposits on June 30, 2021 included a temporary balance associated with the proceeds of a commercial client’s business sale late in the second quarter, the majority of which was moved off the balance sheet in early July. Excluding this temporary deposit, total period-end in-market deposits increased by $38.4 million, or 8.6% annualized.
•Excluding the temporary deposit, money market accounts, interest-bearing transaction accounts, and certificates of deposit increased $43.6 million, $5.6 million, and $12.5 million, respectively, while non-interest bearing transaction accounts decreased $23.2 million.
Period-end wholesale funding, including FHLB advances, Federal Reserve Discount Window advances, brokered deposits, and deposits gathered through internet deposit listing services, decreased $99.9 million to $432.4 million.
•Wholesale deposits decreased $69.9 million to $74.6 million. The average rate paid on wholesale deposits increased 18 basis points to 0.92% and the weighted average original maturity of brokered certificates of deposit increased to 3.7 years from 3.5 years.
•FHLB advances decreased $30.0 million to $357.8 million. The average rate paid on FHLB advances increased two basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 6.1 years.
Non-performing assets decreased $4.0 million, or 34.4%, to $7.6 million, or 0.29% of total assets, compared to $11.6 million, or 0.40% of total assets. The reduction in non-performing assets was due to loan payoffs. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021, compared to 0.42% as of June 30, 2021.
The allowance for loan and lease losses decreased $1.0 million, or 3.9%, as an increase in the general reserve from loan growth was more than offset by a decrease in the historical loss rate and reduction in specific reserves.
•The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.20% as of June 30, 2021.
•Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20%, compared to 1.27% as of June 30, 2021.
Third Quarter 2021 Compared to Third Quarter 2020
Net interest income increased $2.6 million, or 14.0%, to $21.2 million.
•The increase in net interest income reflects expanded yields on average gross loans and leases, which were relatively consistent between periods, and lower deposit costs. Excluding fees collected in lieu of interest and interest income from PPP loans, net interest income increased $1.9 million, or 11.4%. Excluding net PPP loans, average gross loans and leases increased $227.2 million, or 12.5%.
•The yield on average interest-earning assets measured 3.90% compared to 3.75%. Excluding fees collected in lieu of interest, PPP loan interest income and net PPP loans, the yield on average interest-earning assets measured 3.53%, compared to 3.89%. This decrease in yield was primarily due to the decrease in LIBOR and Prime rates and related impact on variable-rate loans, in addition to the renewal of fixed-rate loans and reinvestment of cash flows from the securities portfolio at historically low interest rates. The rate paid for average total bank funding decreased 18 basis points to 0.36% from 0.54%.
•Net interest margin increased 31 basis points to 3.45% from 3.14%. Adjusted net interest margin decreased 2 basis points to 3.22% from 3.24%.
The Company reported a net benefit to provision for loan and lease losses of $2.3 million, compared to a $3.8 million expense in the third quarter of 2020.
Non-interest income of $7.0 million compares to $7.4 million in the prior year period.
•Private wealth management fee income increased $592,000, or 27.3%, to $2.8 million. Private wealth and trust assets under management and administration measured a record $2.694 billion at September 30, 2021, up $676.6 million, or 33.5%.
•Loan fees of $713,000 increased by $235,000, or 49.2%, primarily due to an increase in floorplan financing curtailment fees and miscellaneous asset-based lending fees.
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•Gains on sale of SBA loans decreased $39,000 to $721,000. Management expects this revenue stream to return to levels consistent with the first half of the year in the coming quarters and continues to believe gains on sale of traditional SBA loans (i.e., SBA loans unrelated to PPP loans), while variable based on timing of closings, will continue to increase annually at a measured pace.
•During the third quarter of 2021, there was no commercial loan interest rate swap fee income activity, compared to $2.4 million in the year-ago period. Swap fee income can vary from period to period based on client demand and the interest rate environment in any given quarter.
•Other fee income increased $1.2 million, or 176.0%, to $1.9 million compared to $676,000, reflecting higher than typical returns from the Company’s investments in mezzanine funds in the third quarter of 2021.
Non-interest expense increased $1.7 million, or 10.3%, to $18.5 million. Operating expense increased $1.8 million, or 11.1%, to $18.5 million.
•Compensation expense increased $1.5 million, or 12.6%, to $13.4 million. The increase resulted from new hires and an increase in performance-based incentive compensation accruals reflecting strong company performance relative to bonus criteria.. Average full-time equivalent employees increased to 311, up 5.4% for the quarter ended September 30, 2021, compared to 295 for the quarter ended September 30, 2020.
Total period-end loans and leases receivable, excluding net PPP loans in both periods of comparison, increased $214.0 million, or 11.6%, to $2.059 billion.
•C&I loans, excluding net PPP loans, increased $151.7 million, or 32.6%.
•CRE loans increased $61.2 million, or 4.6%, as increases in the non-owner occupied and multi-family portfolios were partially offset by reductions in the land development and 1-4 family portfolios.
Total period-end in-market deposits increased $162.4 million, or 9.7%, to $1.830 billion and the average rate paid decreased 13 basis points to 0.14%.
•Transaction and money market accounts increased $106.3 million and $91.9 million, respectively, while certificates of deposits decreased $35.7 million.
Period-end wholesale funding decreased $180.8 million to $432.4 million.
•Wholesale deposits decreased $79.5 million to $74.6 million, compared to $154.1 million, as the existing portfolio runoff was replaced by in-market deposits. The average rate paid on brokered certificates of deposit decreased 41 basis points to 0.92% and the weighted average original maturity decreased to 3.7 years from 4.3 years.
•FHLB advances decreased $71.7 million to $357.8 million. The average rate paid on FHLB advances increased 14 basis points to 1.29% and the weighted average original maturity increased to 6.2 years from 5.1 years.
Non-performing assets decreased to $7.6 million, or 0.29% of total assets, compared to $36.7 million, or 1.41% of total assets. Excluding net PPP loans, non-performing assets were 0.30% of total assets as of September 30, 2021 compared to 1.61% one year prior.
The allowance for loan and lease losses decreased $6.1 million to $24.7 million, compared to $30.8 million.
•The allowance for loan and lease losses as a percent of total gross loans and leases was 1.16% compared to 1.41%.
•Excluding net PPP loans, the allowance for loan and leases losses as a percent of total gross loans and leases was 1.20% as of September 30, 2021 compared to 1.67% one year prior.
COVID-19 Update
In the second quarter of 2021, the Company communicated return to office plans to employees. Based on the national and local guidelines, the Company developed a phased-in approach for returning to the office. Under this phased-in approach, more employees returned to the office in early June 2021. The return to office included enhanced safety protocols and processes to provide the best working environment possible for employees. In addition, the Company has adopted workplace flexibility strategies in response to ever-changing circumstances and expectations. Remote, hybrid and hoteling options are available for most positions. These options cultivate a more flexible work environment that is very attractive to our employees.
Paycheck Protection Program
As of September 30, 2021, the Company had $65.9 million in gross PPP loans outstanding and deferred processing fees outstanding of $1.4 million. The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method. During the three and nine months ended
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September 30, 2021, the Company recognized $1.7 million and $6.4 million, respectively, of processing fees in loans and leases interest income in the unaudited Consolidated Statements of Income. The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement. Since loan losses are expected to be immaterial, if at all due to the government guarantee, management excluded the PPP loans from the allowance for loan and lease losses calculation. These short-term loans were funded primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.
Deferral Requests
The Company provided loan modifications deferring payments for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Company’s loan modification program. Excluding gross PPP loans, as of September 30, 2021, the Company had five deferred loans outstanding in an aggregate amount of $24.1 million, or 1.2% of gross loans and leases, compared to $131.5 million, or 7.2% of gross loans and leases as of September 30, 2020. Of the $24.1 million of deferred loans outstanding, $23.5 million is related to three hospitality credits which received principal deferrals and are accruing and current on interest payments. Management believes there will be no losses associated with these credits.
The following tables represent a breakdown of the deferred loan balances by industry segment and collateral type:
| As of | ||||||||||||||||||||
| September 30, 2021 | ||||||||||||||||||||
| Collateral Type | ||||||||||||||||||||
| Industries Description | Balance | Real Estate | Non-Real Estate | |||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Accommodation and Food Services | $ | 23,521 | $ | 23,521 | $ | — | ||||||||||||||
| Manufacturing | 428 | — | 428 | |||||||||||||||||
| Retail Trade | 115 | — | 115 | |||||||||||||||||
| Total deferred loan balances | $ | 24,064 | $ | 23,521 | $ | 543 | ||||||||||||||
Exposure to Stressed Industries
Certain industries have been and are expected to be particularly impacted by social distancing, quarantines, and the economic impact of the COVID-19 pandemic, such as the following:
| As of | ||||||||||||||||||||||||||
| September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||
| Industries: | Balance | % Gross Loans and Leases (1) | Balance | % Gross Loans and Leases (1) | ||||||||||||||||||||||
| (Dollars in Thousands) | ||||||||||||||||||||||||||
Retail (2) (3) | $ | 76,635 | 3.7 | % | $ | 62,719 | 3.3 | % | ||||||||||||||||||
Hospitality | 77,286 | 3.7 | % | 80,832 | 4.2 | % | ||||||||||||||||||||
Entertainment | 13,533 | 0.7 | % | 14,208 | 0.7 | % | ||||||||||||||||||||
Restaurants & food service | 22,393 | 1.1 | % | 24,854 | 1.3 | % | ||||||||||||||||||||
Total outstanding exposure | $ | 189,847 | 9.2 | % | $ | 182,613 | 9.5 | % | ||||||||||||||||||
(1)Excluding net PPP loans.
(2)Includes $39.6 million and $48.9 million in loans secured by commercial real estate as of September 30, 2021 and December 31, 2020, respectively.
(3)Includes $23.2 million and $7.7 million in fully collateralized asset-based loans as of September 30, 2021 and December 31, 2020, respectively.
Because of the uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on our clients and prospects, and on the national and local economies as a whole, there can be no assurances as to the future effect of the ongoing pandemic on the Company’s loan portfolio.
Share Repurchase Program Update
During the third quarter the Company repurchased a total of 129,600 shares for approximately $3.5 million at an average cost of $27.40 per share. The Company had $717,000 of repurchase authority as of September 30, 2021 remaining in its previously disclosed share repurchase program.
6
About First Business Financial Services, Inc.
First Business Financial Services, Inc., (Nasdaq: FBIZ) is the parent company of First Business Bank. First Business Bank specializes in Business Banking, including Commercial Banking and Specialized Lending, Private Wealth, and Bank Consulting services, and through its refined focus, delivers unmatched expertise, accessibility, and responsiveness. Specialized Lending solutions are delivered through First Business Bank’s wholly owned subsidiary First Business Specialty Finance, LLC. For additional information, visit www.firstbusiness.bank.
This release may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995, which reflect First Business Bank’s current views with respect to future events and financial performance. Forward-looking statements are not based on historical information, but rather are related to future operations, strategies, financial results, or other developments. Forward-looking statements are based on management’s expectations as well as certain assumptions and estimates made by, and information available to, management at the time the statements are made. Those statements are based on general assumptions and are subject to various risks, uncertainties, and other factors that may cause actual results to differ materially from the views, beliefs, and projections expressed in such statements. Such statements are subject to risks and uncertainties, including among other things:
•Adverse changes in the economy or business conditions, either nationally or in our markets, including, without limitation, the adverse effects of the COVID-19 pandemic on the global, national, and local economy.
•The effect of the COVID-19 pandemic on the Company’s credit quality, revenue, and business operations.
•Competitive pressures among depository and other financial institutions nationally and in our markets.
•Increases in defaults by borrowers and other delinquencies.
•Our ability to manage growth effectively, including the successful expansion of our client service, administrative infrastructure, and internal management systems.
•Fluctuations in interest rates and market prices.
•Changes in legislative or regulatory requirements applicable to us and our subsidiaries.
•Changes in tax requirements, including tax rate changes, new tax laws, and revised tax law interpretations.
•Fraud, including client and system failure or breaches of our network security, including our internet banking activities.
•Failure to comply with the applicable SBA regulations in order to maintain the eligibility of the guaranteed portion of SBA loans.
For further information about the factors that could affect the Company’s future results, please see the Company’s annual report on Form 10-K for the year ended December 31, 2020 and other filings with the Securities and Exchange Commission.
| CONTACT: | First Business Financial Services, Inc. | |||||||
| Edward G. Sloane, Jr. | ||||||||
| Chief Financial Officer | ||||||||
| 608-232-5970 | ||||||||
| esloane@firstbusiness.bank | ||||||||
7
SELECTED FINANCIAL CONDITION DATA
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 110,624 | $ | 389,977 | $ | 58,874 | $ | 56,909 | $ | 51,728 | ||||||||||||||||||||||
| Securities available-for-sale, at fair value | 194,056 | 171,219 | 173,261 | 183,925 | 179,274 | |||||||||||||||||||||||||||
| Securities held-to-maturity, at amortized cost | 21,196 | 22,382 | 24,783 | 26,374 | 28,897 | |||||||||||||||||||||||||||
| Loans held for sale | 5,603 | 6,059 | 6,576 | 8,695 | 15,049 | |||||||||||||||||||||||||||
| Loans and leases receivable | 2,123,306 | 2,143,561 | 2,235,112 | 2,145,970 | 2,170,299 | |||||||||||||||||||||||||||
| Allowance for loan and lease losses | (24,676) | (25,675) | (28,982) | (28,521) | (30,817) | |||||||||||||||||||||||||||
| Loans and leases receivable, net | 2,098,630 | 2,117,886 | 2,206,130 | 2,117,449 | 2,139,482 | |||||||||||||||||||||||||||
| Premises and equipment, net | 1,700 | 1,747 | 1,923 | 1,998 | 2,130 | |||||||||||||||||||||||||||
| Foreclosed properties | 172 | 179 | 31 | 34 | 613 | |||||||||||||||||||||||||||
Right-of-use assets | 5,263 | 5,472 | 5,486 | 5,814 | 6,141 | |||||||||||||||||||||||||||
Bank-owned life insurance | 53,244 | 52,887 | 52,537 | 52,188 | 51,798 | |||||||||||||||||||||||||||
Federal Home Loan Bank stock, at cost | 12,351 | 13,451 | 14,941 | 13,578 | 15,153 | |||||||||||||||||||||||||||
| Goodwill and other intangible assets | 12,229 | 12,178 | 12,055 | 12,018 | 12,024 | |||||||||||||||||||||||||||
| Derivatives | 28,678 | 32,377 | 26,104 | 49,377 | 58,210 | |||||||||||||||||||||||||||
| Accrued interest receivable and other assets | 40,664 | 39,855 | 38,017 | 39,478 | 41,348 | |||||||||||||||||||||||||||
| Total assets | $ | 2,584,410 | $ | 2,865,669 | $ | 2,620,718 | $ | 2,567,837 | $ | 2,601,847 | ||||||||||||||||||||||
Liabilities and Stockholders’ Equity | ||||||||||||||||||||||||||||||||
| In-market deposits | $ | 1,829,644 | $ | 2,016,215 | $ | 1,737,226 | $ | 1,683,008 | $ | 1,667,245 | ||||||||||||||||||||||
| Wholesale deposits | 74,638 | 144,492 | 165,492 | 172,508 | 154,130 | |||||||||||||||||||||||||||
| Total deposits | 1,904,282 | 2,160,707 | 1,902,718 | 1,855,516 | 1,821,375 | |||||||||||||||||||||||||||
Federal Home Loan Bank advances and other borrowings | 394,090 | 420,113 | 448,417 | 419,167 | 483,517 | |||||||||||||||||||||||||||
| Junior subordinated notes | 10,072 | 10,069 | 10,065 | 10,062 | 10,058 | |||||||||||||||||||||||||||
| Lease liabilities | 5,780 | 6,005 | 6,040 | 6,386 | 6,728 | |||||||||||||||||||||||||||
| Derivatives | 31,890 | 36,109 | 29,565 | 54,927 | 64,403 | |||||||||||||||||||||||||||
| Accrued interest payable and other liabilities | 13,016 | 11,214 | 9,422 | 15,617 | 14,981 | |||||||||||||||||||||||||||
| Total liabilities | 2,359,130 | 2,644,217 | 2,406,227 | 2,361,675 | 2,401,062 | |||||||||||||||||||||||||||
| Total stockholders’ equity | 225,280 | 221,452 | 214,491 | 206,162 | 200,785 | |||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,584,410 | $ | 2,865,669 | $ | 2,620,718 | $ | 2,567,837 | $ | 2,601,847 | ||||||||||||||||||||||
8
STATEMENTS OF INCOME
| (Unaudited) | As of and for the Three Months Ended | As of and for the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| Total interest income | $ | 24,014 | $ | 24,599 | $ | 23,806 | $ | 25,770 | $ | 22,276 | $ | 72,420 | $ | 68,408 | ||||||||||||||||||||||||||||||
| Total interest expense | 2,791 | 2,947 | 2,943 | 3,258 | 3,655 | 8,682 | 13,850 | |||||||||||||||||||||||||||||||||||||
| Net interest income | 21,223 | 21,652 | 20,863 | 22,512 | 18,621 | 63,738 | 54,558 | |||||||||||||||||||||||||||||||||||||
Provision for loan and lease losses | (2,269) | (958) | (2,068) | 4,322 | 3,835 | (5,295) | 12,487 | |||||||||||||||||||||||||||||||||||||
Net interest income after provision for loan and lease losses | 23,492 | 22,610 | 22,931 | 18,190 | 14,786 | 69,033 | 42,071 | |||||||||||||||||||||||||||||||||||||
Private wealth management service fees | 2,759 | 2,744 | 2,407 | 2,208 | 2,167 | 7,910 | 6,402 | |||||||||||||||||||||||||||||||||||||
Gain on sale of SBA loans | 721 | 1,203 | 1,078 | 1,300 | 760 | 3,002 | 1,598 | |||||||||||||||||||||||||||||||||||||
Service charges on deposits | 956 | 941 | 917 | 887 | 881 | 2,814 | 2,527 | |||||||||||||||||||||||||||||||||||||
| Loan fees | 713 | 569 | 545 | 412 | 478 | 1,828 | 1,414 | |||||||||||||||||||||||||||||||||||||
| Net gain (loss) on sale of securities | — | 29 | — | — | — | 29 | (4) | |||||||||||||||||||||||||||||||||||||
| Swap fees | — | — | 684 | 1,078 | 2,446 | 684 | 5,782 | |||||||||||||||||||||||||||||||||||||
| Other non-interest income | 1,866 | 835 | 1,564 | 914 | 676 | 4,264 | 2,422 | |||||||||||||||||||||||||||||||||||||
Total non-interest income | 7,015 | 6,321 | 7,195 | 6,799 | 7,408 | 20,531 | 20,141 | |||||||||||||||||||||||||||||||||||||
| Compensation | 13,351 | 13,255 | 12,657 | 12,145 | 11,857 | 39,263 | 33,705 | |||||||||||||||||||||||||||||||||||||
| Occupancy | 544 | 533 | 552 | 556 | 570 | 1,628 | 1,696 | |||||||||||||||||||||||||||||||||||||
Professional fees | 1,024 | 913 | 866 | 909 | 943 | 2,803 | 2,621 | |||||||||||||||||||||||||||||||||||||
Data processing | 746 | 798 | 770 | 668 | 679 | 2,315 | 2,066 | |||||||||||||||||||||||||||||||||||||
Marketing | 572 | 511 | 391 | 411 | 356 | 1,474 | 1,169 | |||||||||||||||||||||||||||||||||||||
Equipment | 260 | 261 | 246 | 294 | 310 | 767 | 905 | |||||||||||||||||||||||||||||||||||||
Computer software | 999 | 1,129 | 1,115 | 1,028 | 1,017 | 3,244 | 2,873 | |||||||||||||||||||||||||||||||||||||
FDIC insurance | 291 | 280 | 362 | 479 | 312 | 933 | 760 | |||||||||||||||||||||||||||||||||||||
| Collateral liquidation cost | 47 | 84 | 94 | 47 | 45 | 224 | 281 | |||||||||||||||||||||||||||||||||||||
| Net loss (gain) on foreclosed properties | 6 | (1) | 3 | 54 | (121) | 7 | 329 | |||||||||||||||||||||||||||||||||||||
| Tax credit investment impairment | — | — | — | 328 | 113 | — | 2,066 | |||||||||||||||||||||||||||||||||||||
| SBA recourse (benefit) provision | (69) | 245 | (130) | (330) | 57 | 45 | 53 | |||||||||||||||||||||||||||||||||||||
Loss on early extinguishment of debt | — | — | — | — | — | — | 744 | |||||||||||||||||||||||||||||||||||||
| Other non-interest expense | 719 | 176 | 404 | 1,062 | 620 | 1,300 | 1,977 | |||||||||||||||||||||||||||||||||||||
Total non-interest expense | 18,490 | 18,184 | 17,330 | 17,651 | 16,758 | 54,003 | 51,245 | |||||||||||||||||||||||||||||||||||||
| Income before income tax expense | 12,017 | 10,747 | 12,796 | 7,338 | 5,436 | 35,561 | 10,967 | |||||||||||||||||||||||||||||||||||||
| Income tax expense | 2,819 | 2,512 | 3,065 | 1,254 | 1,143 | 8,396 | 73 | |||||||||||||||||||||||||||||||||||||
| Net income | $ | 9,198 | $ | 8,235 | $ | 9,731 | $ | 6,084 | $ | 4,293 | $ | 27,165 | $ | 10,894 | ||||||||||||||||||||||||||||||
| Per common share: | ||||||||||||||||||||||||||||||||||||||||||||
| Basic earnings | $ | 1.07 | $ | 0.95 | $ | 1.12 | $ | 0.71 | $ | 0.50 | $ | 3.15 | $ | 1.27 | ||||||||||||||||||||||||||||||
| Diluted earnings | 1.07 | 0.95 | 1.12 | 0.71 | 0.50 | 3.15 | 1.27 | |||||||||||||||||||||||||||||||||||||
| Dividends declared | 0.18 | 0.18 | 0.18 | 0.165 | 0.165 | 0.54 | 0.495 | |||||||||||||||||||||||||||||||||||||
| Book value | 26.56 | 25.70 | 24.83 | 24.06 | 23.45 | 26.56 | 23.45 | |||||||||||||||||||||||||||||||||||||
| Tangible book value | 25.11 | 24.28 | 23.43 | 22.66 | 22.05 | 25.11 | 22.05 | |||||||||||||||||||||||||||||||||||||
Weighted-average common shares outstanding(1) | 8,340,042 | 8,385,069 | 8,429,149 | 8,417,216 | 8,404,084 | 8,380,591 | 8,380,676 | |||||||||||||||||||||||||||||||||||||
Weighted-average diluted common shares outstanding(1) | 8,340,042 | 8,385,069 | 8,429,149 | 8,417,216 | 8,404,084 | 8,380,591 | 8,380,676 | |||||||||||||||||||||||||||||||||||||
(1)Excluding participating securities.
9
NET INTEREST INCOME ANALYSIS
| (Unaudited) | For the Three Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Average Yield/Rate(4) | Average Balance | Interest | Average Yield/Rate(4) | Average Balance | Interest | Average Yield/Rate(4) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-earning assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commercial real estate and other mortgage loans(1) | $ | 1,388,236 | $ | 13,090 | 3.77 | % | $ | 1,386,187 | $ | 13,087 | 3.78 | % | $ | 1,282,132 | $ | 12,340 | 3.85 | % | ||||||||||||||||||||||||||||||||||||||
Commercial and industrial loans(1) | 680,563 | 9,259 | 5.44 | % | 772,257 | 9,875 | 5.11 | % | 791,909 | 8,133 | 4.11 | % | ||||||||||||||||||||||||||||||||||||||||||||
Direct financing leases(1) | 18,611 | 207 | 4.45 | % | 19,883 | 222 | 4.47 | % | 26,129 | 258 | 3.95 | % | ||||||||||||||||||||||||||||||||||||||||||||
Consumer and other loans(1) | 43,689 | 391 | 3.58 | % | 45,026 | 407 | 3.62 | % | 39,269 | 374 | 3.81 | % | ||||||||||||||||||||||||||||||||||||||||||||
Total loans and leases receivable(1) | 2,131,099 | 22,947 | 4.31 | % | 2,223,353 | 23,591 | 4.24 | % | 2,139,439 | 21,105 | 3.95 | % | ||||||||||||||||||||||||||||||||||||||||||||
Mortgage-related securities(2) | 154,372 | 659 | 1.71 | % | 149,253 | 631 | 1.69 | % | 167,326 | 833 | 1.99 | % | ||||||||||||||||||||||||||||||||||||||||||||
Other investment securities(3) | 45,196 | 196 | 1.73 | % | 41,569 | 185 | 1.78 | % | 34,004 | 171 | 2.01 | % | ||||||||||||||||||||||||||||||||||||||||||||
| FHLB stock | 13,279 | 167 | 5.03 | % | 14,172 | 176 | 4.97 | % | 12,835 | 161 | 5.02 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Short-term investments | 116,621 | 45 | 0.15 | % | 55,100 | 16 | 0.12 | % | 21,287 | 6 | 0.11 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 2,460,567 | 24,014 | 3.90 | % | 2,483,447 | 24,599 | 3.96 | % | 2,374,891 | 22,276 | 3.75 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Non-interest-earning assets | 147,631 | 137,893 | 165,844 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 2,608,198 | $ | 2,621,340 | $ | 2,540,735 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction accounts | $ | 509,089 | 251 | 0.20 | % | $ | 499,040 | 248 | 0.20 | % | $ | 445,687 | 259 | 0.23 | % | |||||||||||||||||||||||||||||||||||||||||
| Money market | 703,460 | 306 | 0.17 | % | 662,919 | 282 | 0.17 | % | 642,881 | 318 | 0.20 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Certificates of deposit | 42,370 | 71 | 0.67 | % | 45,993 | 112 | 0.97 | % | 110,891 | 513 | 1.85 | % | ||||||||||||||||||||||||||||||||||||||||||||
Wholesale deposits | 89,135 | 206 | 0.92 | % | 162,580 | 301 | 0.74 | % | 160,067 | 533 | 1.33 | % | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing deposits | 1,344,054 | 834 | 0.25 | % | 1,370,532 | 943 | 0.28 | % | 1,359,526 | 1,623 | 0.48 | % | ||||||||||||||||||||||||||||||||||||||||||||
| FHLB advances | 381,061 | 1,228 | 1.29 | % | 405,855 | 1,284 | 1.27 | % | 379,915 | 1,356 | 1.43 | % | ||||||||||||||||||||||||||||||||||||||||||||
Federal Reserve PPPLF | — | — | — | % | — | — | — | % | 29,605 | 26 | 0.35 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Other borrowings | 32,630 | 449 | 5.50 | % | 32,447 | 443 | 5.46 | % | 24,403 | 370 | 6.06 | % | ||||||||||||||||||||||||||||||||||||||||||||
| Junior subordinated notes | 10,070 | 280 | 11.12 | % | 10,066 | 277 | 11.01 | % | 10,056 | 280 | 11.14 | % | ||||||||||||||||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,767,815 | 2,791 | 0.63 | % | 1,818,900 | 2,947 | 0.65 | % | 1,803,505 | 3,655 | 0.81 | % | ||||||||||||||||||||||||||||||||||||||||||||
Non-interest-bearing demand deposit accounts | 556,029 | 527,441 | 445,245 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities | 59,865 | 56,691 | 91,810 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 2,383,709 | 2,403,032 | 2,340,560 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 224,489 | 218,308 | 200,175 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,608,198 | $ | 2,621,340 | $ | 2,540,735 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 21,223 | $ | 21,652 | $ | 18,621 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest rate spread | 3.27 | % | 3.31 | % | 2.94 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest-earning assets | $ | 692,752 | $ | 664,547 | $ | 571,386 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net interest margin | 3.45 | % | 3.49 | % | 3.14 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||
(1)The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.
(2)Includes amortized cost basis of assets available for sale and held to maturity.
(3)Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.
(4)Represents annualized yields/rates.
10
NET INTEREST INCOME ANALYSIS
| (Unaudited) | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||||
| Average Balance | Interest | Average Yield/Rate(4) | Average Balance | Interest | Average Yield/Rate(4) | |||||||||||||||||||||||||||||||||
| Interest-earning assets | ||||||||||||||||||||||||||||||||||||||
Commercial real estate and other mortgage loans(1) | $ | 1,377,302 | $ | 38,704 | 3.75 | % | $ | 1,209,810 | $ | 38,312 | 4.22 | % | ||||||||||||||||||||||||||
Commercial and industrial loans(1) | 736,623 | 28,759 | 5.21 | % | 678,650 | 24,338 | 4.78 | % | ||||||||||||||||||||||||||||||
Direct financing leases(1) | 20,242 | 673 | 4.43 | % | 27,065 | 761 | 3.75 | % | ||||||||||||||||||||||||||||||
Consumer and other loans(1) | 44,780 | 1,197 | 3.56 | % | 37,260 | 1,091 | 3.90 | % | ||||||||||||||||||||||||||||||
Total loans and leases receivable(1) | 2,178,947 | 69,333 | 4.24 | % | 1,952,785 | 64,502 | 4.40 | % | ||||||||||||||||||||||||||||||
Mortgage-related securities(2) | 155,617 | 1,955 | 1.67 | % | 173,985 | 2,806 | 2.15 | % | ||||||||||||||||||||||||||||||
Other investment securities(3) | 42,992 | 569 | 1.76 | % | 29,177 | 456 | 2.08 | % | ||||||||||||||||||||||||||||||
| FHLB stock | 13,308 | 496 | 4.97 | % | 10,558 | 491 | 6.20 | % | ||||||||||||||||||||||||||||||
| Short-term investments | 65,769 | 67 | 0.14 | % | 39,293 | 153 | 0.52 | % | ||||||||||||||||||||||||||||||
| Total interest-earning assets | 2,456,633 | 72,420 | 3.93 | % | 2,205,798 | 68,408 | 4.13 | % | ||||||||||||||||||||||||||||||
| Non-interest-earning assets | 145,714 | 151,994 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 2,602,347 | $ | 2,357,792 | ||||||||||||||||||||||||||||||||||
| Interest-bearing liabilities | ||||||||||||||||||||||||||||||||||||||
| Transaction accounts | $ | 509,709 | 749 | 0.20 | % | $ | 362,326 | 1,197 | 0.44 | % | ||||||||||||||||||||||||||||
| Money market | 674,858 | 862 | 0.17 | % | 649,999 | 2,555 | 0.52 | % | ||||||||||||||||||||||||||||||
| Certificates of deposit | 48,540 | 360 | 0.99 | % | 122,781 | 1,890 | 2.05 | % | ||||||||||||||||||||||||||||||
Wholesale deposits | 139,205 | 825 | 0.79 | % | 132,811 | 2,021 | 2.03 | % | ||||||||||||||||||||||||||||||
Total interest-bearing deposits | 1,372,312 | 2,796 | 0.27 | % | 1,267,917 | 7,663 | 0.81 | % | ||||||||||||||||||||||||||||||
| FHLB advances | 384,581 | 3,761 | 1.30 | % | 371,738 | 4,198 | 1.51 | % | ||||||||||||||||||||||||||||||
Federal Reserve PPPLF | — | — | — | % | 16,855 | 44 | 0.35 | % | ||||||||||||||||||||||||||||||
| Other borrowings | 30,811 | 1,293 | 5.60 | % | 24,490 | 1,110 | 6.04 | % | ||||||||||||||||||||||||||||||
| Junior subordinated notes | 10,066 | 832 | 11.02 | % | 10,052 | 835 | 11.07 | % | ||||||||||||||||||||||||||||||
Total interest-bearing liabilities | 1,797,770 | 8,682 | 0.64 | % | 1,691,052 | 13,850 | 1.09 | % | ||||||||||||||||||||||||||||||
Non-interest-bearing demand deposit accounts | 523,368 | 392,455 | ||||||||||||||||||||||||||||||||||||
Other non-interest-bearing liabilities | 63,366 | 80,270 | ||||||||||||||||||||||||||||||||||||
| Total liabilities | 2,384,504 | 2,163,777 | ||||||||||||||||||||||||||||||||||||
| Stockholders’ equity | 217,843 | 194,015 | ||||||||||||||||||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 2,602,347 | $ | 2,357,792 | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 63,738 | $ | 54,558 | ||||||||||||||||||||||||||||||||||
| Interest rate spread | 3.29 | % | 3.04 | % | ||||||||||||||||||||||||||||||||||
| Net interest-earning assets | $ | 658,863 | $ | 514,746 | ||||||||||||||||||||||||||||||||||
| Net interest margin | 3.46 | % | 3.30 | % | ||||||||||||||||||||||||||||||||||
(1)The average balances of loans and leases include non-accrual loans and leases and loans held for sale. Interest income related to non-accrual loans and leases is recognized when collected. Interest income includes net loan fees collected in lieu of interest.
(2)Includes amortized cost basis of assets available for sale and held to maturity.
(3)Yields on tax-exempt municipal obligations are not presented on a tax-equivalent basis in this table.
(4)Represents annualized yields/rates.
11
PROVISION FOR LOAN AND LEASE LOSS COMPOSITION
| (Unaudited) | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| Change in general reserve due to subjective factor changes | $ | (51) | $ | (652) | $ | 1,082 | $ | 1,008 | $ | (766) | $ | 379 | $ | 4,697 | ||||||||||||||||||||||||||||||
| Change in general reserve due to historical loss factor changes | (923) | (1,687) | (984) | 1,274 | (16) | (3,594) | (380) | |||||||||||||||||||||||||||||||||||||
| Charge-offs | 364 | 2,894 | 144 | 6,685 | 505 | 3,402 | 1,454 | |||||||||||||||||||||||||||||||||||||
| Recoveries | (1,634) | (545) | (2,673) | (68) | (23) | (4,852) | (264) | |||||||||||||||||||||||||||||||||||||
| Change in specific reserves on impaired loans, net | (451) | (1,466) | (194) | (5,216) | 2,974 | (2,111) | 5,533 | |||||||||||||||||||||||||||||||||||||
| Change due to loan growth, net | 426 | 498 | 557 | 639 | 1,161 | 1,481 | 1,447 | |||||||||||||||||||||||||||||||||||||
| Total provision for loan and lease losses | $ | (2,269) | $ | (958) | $ | (2,068) | $ | 4,322 | $ | 3,835 | $ | (5,295) | $ | 12,487 | ||||||||||||||||||||||||||||||
PERFORMANCE RATIOS
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
Return on average assets (annualized) | 1.41 | % | 1.26 | % | 1.51 | % | 0.93 | % | 0.68 | % | 1.39 | % | 0.62 | % | ||||||||||||||||||||||||||||||
Return on average equity (annualized) | 16.39 | % | 15.09 | % | 18.48 | % | 11.92 | % | 8.58 | % | 16.63 | % | 7.49 | % | ||||||||||||||||||||||||||||||
| Efficiency ratio | 65.68 | % | 64.17 | % | 62.19 | % | 60.02 | % | 64.16 | % | 64.02 | % | 64.29 | % | ||||||||||||||||||||||||||||||
Interest rate spread | 3.27 | % | 3.31 | % | 3.27 | % | 3.51 | % | 2.94 | % | 3.29 | % | 3.04 | % | ||||||||||||||||||||||||||||||
| Net interest margin | 3.45 | % | 3.49 | % | 3.44 | % | 3.69 | % | 3.14 | % | 3.46 | % | 3.30 | % | ||||||||||||||||||||||||||||||
Average interest-earning assets to average interest-bearing liabilities | 139.19 | % | 136.54 | % | 134.23 | % | 132.88 | % | 131.68 | % | 136.65 | % | 130.44 | % | ||||||||||||||||||||||||||||||
ASSET QUALITY RATIOS
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
Non-accrual loans and leases | $ | 7,433 | $ | 11,422 | $ | 18,992 | $ | 26,617 | $ | 36,050 | ||||||||||||||||||||||
Foreclosed properties | 172 | 179 | 31 | 34 | 613 | |||||||||||||||||||||||||||
Total non-performing assets | 7,605 | 11,601 | 19,023 | 26,651 | 36,663 | |||||||||||||||||||||||||||
Performing troubled debt restructurings | 53 | 56 | 59 | 46 | 47 | |||||||||||||||||||||||||||
Total impaired assets | $ | 7,658 | $ | 11,657 | $ | 19,082 | $ | 26,697 | $ | 36,710 | ||||||||||||||||||||||
Non-accrual loans and leases as a percent of total gross loans and leases | 0.35 | % | 0.53 | % | 0.85 | % | 1.24 | % | 1.66 | % | ||||||||||||||||||||||
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties | 0.36 | % | 0.54 | % | 0.85 | % | 1.24 | % | 1.68 | % | ||||||||||||||||||||||
Non-performing assets as a percent of total assets | 0.29 | % | 0.40 | % | 0.73 | % | 1.04 | % | 1.41 | % | ||||||||||||||||||||||
Allowance for loan and lease losses as a percent of total gross loans and leases | 1.16 | % | 1.20 | % | 1.29 | % | 1.33 | % | 1.41 | % | ||||||||||||||||||||||
Allowance for loan and lease losses as a percent of non-accrual loans and leases | 331.98 | % | 224.79 | % | 152.60 | % | 107.15 | % | 85.48 | % | ||||||||||||||||||||||
12
ASSET QUALITY RATIOS - EXCLUDING NET PPP LOANS
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
Non-accrual loans and leases as a percent of total gross loans and leases | 0.36 | % | 0.56 | % | 0.96 | % | 1.38 | % | 1.95 | % | ||||||||||||||||||||||
Non-performing assets as a percent of total gross loans and leases plus foreclosed properties | 0.37 | % | 0.57 | % | 0.96 | % | 1.38 | % | 1.98 | % | ||||||||||||||||||||||
Non-performing assets as a percent of total assets | 0.30 | % | 0.42 | % | 0.81 | % | 1.14 | % | 1.61 | % | ||||||||||||||||||||||
Allowance for loan and lease losses as a percent of total gross loans and leases | 1.20 | % | 1.27 | % | 1.47 | % | 1.48 | % | 1.67 | % | ||||||||||||||||||||||
| PPP loans outstanding, net | $ | 64,454 | $ | 120,723 | $ | 267,567 | $ | 225,323 | $ | 325,481 | ||||||||||||||||||||||
NET CHARGE-OFFS (RECOVERIES)
| (Unaudited) | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
Charge-offs | $ | 364 | $ | 2,894 | $ | 144 | $ | 6,685 | $ | 505 | $ | 3,402 | $ | 1,454 | ||||||||||||||||||||||||||||||
Recoveries | (1,634) | (545) | (2,673) | (68) | (23) | (4,852) | (264) | |||||||||||||||||||||||||||||||||||||
| Net (recoveries) charge-offs | $ | (1,270) | $ | 2,349 | $ | (2,529) | $ | 6,617 | $ | 482 | $ | (1,450) | $ | 1,190 | ||||||||||||||||||||||||||||||
Net (recoveries) charge-offs as a percent of average gross loans and leases (annualized) | (0.24) | % | 0.42 | % | (0.46) | % | 1.21 | % | 0.09 | % | (0.09) | % | 0.08 | % | ||||||||||||||||||||||||||||||
| Annualized (recoveries) charge-offs as a percent of average gross loans and leases, excluding average net PPP loans | (0.25) | % | 0.47 | % | (0.52) | % | 1.39 | % | 0.11 | % | (0.10) | % | 0.09 | % | ||||||||||||||||||||||||||||||
| Average PPP loans outstanding, net | $ | 87,517 | $ | 229,165 | $ | 242,242 | $ | 282,259 | $ | 323,082 | $ | 185,742 | $ | 192,451 | ||||||||||||||||||||||||||||||
CAPITAL RATIOS
| As of and for the Three Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||||
| Total capital to risk-weighted assets | 11.14 | % | 11.22 | % | 11.52 | % | 11.25 | % | 11.42 | % | ||||||||||||||||||||||||||||||||||
| Tier I capital to risk-weighted assets | 9.14 | % | 9.14 | % | 9.24 | % | 8.96 | % | 9.09 | % | ||||||||||||||||||||||||||||||||||
| Common equity tier I capital to risk-weighted assets | 8.73 | % | 8.72 | % | 8.81 | % | 8.53 | % | 8.64 | % | ||||||||||||||||||||||||||||||||||
| Tier I capital to adjusted assets | 8.69 | % | 8.48 | % | 8.37 | % | 7.99 | % | 8.04 | % | ||||||||||||||||||||||||||||||||||
| Tangible common equity to tangible assets | 8.28 | % | 7.33 | % | 7.76 | % | 7.60 | % | 7.29 | % | ||||||||||||||||||||||||||||||||||
| Tangible common equity to tangible assets, excluding net PPP loans | 8.50 | % | 7.66 | % | 8.65 | % | 8.33 | % | 8.34 | % | ||||||||||||||||||||||||||||||||||
13
LOAN AND LEASE RECEIVABLE COMPOSITION
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
| Commercial real estate: | ||||||||||||||||||||||||||||||||
Commercial real estate - owner occupied | $ | 241,977 | $ | 253,600 | $ | 256,812 | $ | 253,882 | $ | 240,706 | ||||||||||||||||||||||
Commercial real estate - non-owner occupied | 639,423 | 614,289 | 592,090 | 564,532 | 565,781 | |||||||||||||||||||||||||||
| Land development | 39,119 | 45,056 | 46,544 | 49,839 | 50,864 | |||||||||||||||||||||||||||
| Construction | 139,933 | 139,943 | 151,345 | 141,043 | 142,726 | |||||||||||||||||||||||||||
| Multi-family | 313,787 | 319,351 | 322,384 | 311,556 | 287,583 | |||||||||||||||||||||||||||
| 1-4 family | 13,487 | 19,769 | 23,319 | 38,284 | 38,857 | |||||||||||||||||||||||||||
Total commercial real estate | 1,387,726 | 1,392,008 | 1,392,494 | 1,359,136 | 1,326,517 | |||||||||||||||||||||||||||
Commercial and industrial | 681,065 | 695,442 | 784,305 | 732,318 | 790,349 | |||||||||||||||||||||||||||
| Direct financing leases, net | 16,810 | 18,142 | 19,616 | 22,331 | 24,743 | |||||||||||||||||||||||||||
| Consumer and other: | ||||||||||||||||||||||||||||||||
Home equity and second mortgages | 4,576 | 5,740 | 6,719 | 7,833 | 7,106 | |||||||||||||||||||||||||||
| Other | 35,645 | 36,567 | 38,266 | 28,897 | 29,341 | |||||||||||||||||||||||||||
Total consumer and other | 40,221 | 42,307 | 44,985 | 36,730 | 36,447 | |||||||||||||||||||||||||||
Total gross loans and leases receivable | 2,125,822 | 2,147,899 | 2,241,400 | 2,150,515 | 2,178,056 | |||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||
Allowance for loan and lease losses | 24,676 | 25,675 | 28,982 | 28,521 | 30,817 | |||||||||||||||||||||||||||
| Deferred loan fees | 2,516 | 4,338 | 6,288 | 4,545 | 7,757 | |||||||||||||||||||||||||||
Loans and leases receivable, net | $ | 2,098,630 | $ | 2,117,886 | $ | 2,206,130 | $ | 2,117,449 | $ | 2,139,482 | ||||||||||||||||||||||
LEGACY SBA 7(a) AND EXPRESS LOAN COMPOSITION (1)
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
| Performing loans: | ||||||||||||||||||||||||||||||||
Off-balance sheet loans | $ | 13,340 | $ | 14,161 | $ | 17,523 | $ | 23,354 | $ | 26,017 | ||||||||||||||||||||||
On-balance sheet loans | 3,905 | 6,836 | 7,340 | 11,117 | 15,175 | |||||||||||||||||||||||||||
Gross loans | 17,245 | 20,997 | 24,863 | 34,471 | 41,192 | |||||||||||||||||||||||||||
Non-performing loans: | ||||||||||||||||||||||||||||||||
Off-balance sheet loans | 3,689 | 3,943 | 1,835 | 1,931 | 2,574 | |||||||||||||||||||||||||||
On-balance sheet loans | 624 | 1,800 | 6,832 | 7,435 | 9,561 | |||||||||||||||||||||||||||
Gross loans | 4,313 | 5,743 | 8,667 | 9,366 | 12,135 | |||||||||||||||||||||||||||
Total loans: | ||||||||||||||||||||||||||||||||
Off-balance sheet loans | 17,029 | 18,104 | 19,358 | 25,285 | 28,591 | |||||||||||||||||||||||||||
On-balance sheet loans | 4,529 | 8,636 | 14,172 | 18,552 | 24,736 | |||||||||||||||||||||||||||
Gross loans | $ | 21,558 | $ | 26,740 | $ | 33,530 | $ | 43,837 | $ | 53,327 | ||||||||||||||||||||||
(1)Defined as SBA 7(a) and Express loans originated in 2016 and prior.
14
DEPOSIT COMPOSITION
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
Non-interest-bearing transaction accounts | $ | 526,047 | $ | 774,253 | $ | 496,877 | $ | 472,818 | $ | 452,268 | ||||||||||||||||||||||
Interest-bearing transaction accounts | 517,248 | 511,698 | 561,466 | 503,992 | 484,761 | |||||||||||||||||||||||||||
| Money market accounts | 728,751 | 685,127 | 632,065 | 641,504 | 636,872 | |||||||||||||||||||||||||||
| Certificates of deposit | 57,598 | 45,137 | 46,818 | 64,694 | 93,344 | |||||||||||||||||||||||||||
| Wholesale deposits | 74,638 | 144,492 | 165,492 | 172,508 | 154,130 | |||||||||||||||||||||||||||
| Total deposits | $ | 1,904,282 | $ | 2,160,707 | $ | 1,902,718 | $ | 1,855,516 | $ | 1,821,375 | ||||||||||||||||||||||
TRUST ASSETS COMPOSITION
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
Trust assets under management | $ | 2,491,498 | $ | 2,362,257 | $ | 2,195,804 | $ | 2,061,772 | $ | 1,841,986 | ||||||||||||||||||||||
Trust assets under administration | 202,657 | 202,116 | 190,721 | 187,228 | 175,521 | |||||||||||||||||||||||||||
Total trust assets | $ | 2,694,155 | $ | 2,564,373 | $ | 2,386,525 | $ | 2,249,000 | $ | 2,017,507 | ||||||||||||||||||||||
NON-GAAP RECONCILIATIONS
Certain financial information provided in this release is determined by methods other than in accordance with generally accepted accounting principles (United States) (“GAAP”). Although the Company’s management believes that these non-GAAP financial measures provide a greater understanding of its business, these measures are not necessarily comparable to similar measures that may be presented by other companies.
TANGIBLE BOOK VALUE
“Tangible book value per share” is a non-GAAP measure representing tangible common equity divided by total common shares outstanding. “Tangible common equity” itself is a non-GAAP measure representing common stockholders’ equity reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in period-to-period changes in book value per common share exclusive of changes in intangible assets. The information provided below reconciles tangible book value per share and tangible common equity to their most comparable GAAP measures.
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (Dollars in thousands, except per share amounts) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
| Common stockholders’ equity | $ | 225,280 | $ | 221,452 | $ | 214,491 | $ | 206,162 | $ | 200,785 | ||||||||||||||||||||||
| Goodwill and other intangible assets | (12,229) | (12,178) | (12,055) | (12,018) | (12,024) | |||||||||||||||||||||||||||
| Tangible common equity | $ | 213,051 | $ | 209,274 | $ | 202,436 | $ | 194,144 | $ | 188,761 | ||||||||||||||||||||||
| Common shares outstanding | 8,483,099 | 8,617,761 | 8,638,195 | 8,566,960 | 8,561,714 | |||||||||||||||||||||||||||
| Book value per share | $ | 26.56 | $ | 25.70 | $ | 24.83 | $ | 24.06 | $ | 23.45 | ||||||||||||||||||||||
Tangible book value per share | 25.11 | 24.28 | 23.43 | 22.66 | 22.05 | |||||||||||||||||||||||||||
15
TANGIBLE COMMON EQUITY TO TANGIBLE ASSETS
“Tangible common equity to tangible assets’’ is defined as the ratio of common stockholders’ equity reduced by intangible assets, if any, divided by total assets reduced by intangible assets, if any. The Company’s management believes that this measure is important to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total assets, each exclusive of changes in intangible assets. The information below reconciles tangible common equity and tangible assets to their most comparable GAAP measures.
| (Unaudited) | As of | |||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||||||||||||||||||||||||
| Common stockholders’ equity | $ | 225,280 | $ | 221,452 | $ | 214,491 | $ | 206,162 | $ | 200,785 | ||||||||||||||||||||||
| Goodwill and other intangible assets | (12,229) | (12,178) | (12,055) | (12,018) | (12,024) | |||||||||||||||||||||||||||
| Tangible common equity | $ | 213,051 | $ | 209,274 | $ | 202,436 | $ | 194,144 | $ | 188,761 | ||||||||||||||||||||||
| Total assets | $ | 2,584,410 | $ | 2,865,669 | $ | 2,620,718 | $ | 2,567,837 | $ | 2,601,847 | ||||||||||||||||||||||
| Goodwill and other intangible assets | (12,229) | (12,178) | (12,055) | (12,018) | (12,024) | |||||||||||||||||||||||||||
Tangible assets | $ | 2,572,181 | $ | 2,853,491 | $ | 2,608,663 | $ | 2,555,819 | $ | 2,589,823 | ||||||||||||||||||||||
Tangible common equity to tangible assets | 8.28 | % | 7.33 | % | 7.76 | % | 7.60 | % | 7.29 | % | ||||||||||||||||||||||
| Period-end net PPP loans | 64,454 | 120,722 | 267,567 | 225,323 | 325,481 | |||||||||||||||||||||||||||
| Tangible assets, excluding net PPP loans | $ | 2,507,727 | $ | 2,732,769 | $ | 2,341,096 | $ | 2,330,496 | $ | 2,264,342 | ||||||||||||||||||||||
| Tangible common equity to tangible assets, excluding net PPP loans | 8.50 | % | 7.66 | % | 8.65 | % | 8.33 | % | 8.34 | % | ||||||||||||||||||||||
16
EFFICIENCY RATIO & PRE-TAX, PRE-PROVISION ADJUSTED EARNINGS
“Efficiency ratio” is a non-GAAP measure representing non-interest expense excluding the effects of the SBA recourse provision, impairment of tax credit investments, losses or gains on foreclosed properties, amortization of other intangible assets and other discrete items, if any, divided by operating revenue, which is equal to net interest income plus non-interest income less realized gains or losses on securities, if any. “Pre-tax, pre-provision adjusted earnings” is defined as operating revenue less operating expense. In the judgment of the Company’s management, the adjustments made to non-interest expense and non-interest income allow investors and analysts to better assess the Company’s operating expenses in relation to its core operating revenue by removing the volatility that is associated with certain one-time items and other discrete items. The information provided below reconciles the efficiency ratio and pre-tax, pre-provision adjusted earnings to its most comparable GAAP measure.
| (Unaudited) | For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| Total non-interest expense | $ | 18,490 | $ | 18,184 | $ | 17,330 | $ | 17,651 | $ | 16,758 | $ | 54,003 | $ | 51,245 | ||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||
| Net loss (gain) on foreclosed properties | 6 | (1) | 3 | 54 | (121) | 7 | 329 | |||||||||||||||||||||||||||||||||||||
Amortization of other intangible assets | 7 | 8 | 8 | 8 | 9 | 23 | 27 | |||||||||||||||||||||||||||||||||||||
| SBA recourse (benefit) provision | (69) | 245 | (130) | (330) | 57 | 45 | 53 | |||||||||||||||||||||||||||||||||||||
| Tax credit investment impairment | — | — | — | 328 | 113 | — | 2,066 | |||||||||||||||||||||||||||||||||||||
Loss on early extinguishment of debt | — | — | — | — | — | — | 744 | |||||||||||||||||||||||||||||||||||||
Total operating expense (a) | $ | 18,546 | $ | 17,932 | $ | 17,449 | $ | 17,591 | $ | 16,700 | $ | 53,928 | $ | 48,026 | ||||||||||||||||||||||||||||||
| Net interest income | $ | 21,223 | $ | 21,652 | $ | 20,863 | $ | 22,512 | $ | 18,621 | $ | 63,738 | $ | 54,558 | ||||||||||||||||||||||||||||||
| Total non-interest income | 7,015 | 6,321 | 7,195 | 6,799 | 7,408 | 20,531 | 20,141 | |||||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||
| Net gain (loss) on sale of securities | — | 29 | — | — | — | 29 | (4) | |||||||||||||||||||||||||||||||||||||
| Adjusted non-interest income | 7,015 | 6,292 | 7,195 | 6,799 | 7,408 | 20,502 | 20,145 | |||||||||||||||||||||||||||||||||||||
Total operating revenue (b) | $ | 28,238 | $ | 27,944 | $ | 28,058 | $ | 29,311 | $ | 26,029 | $ | 84,240 | $ | 74,703 | ||||||||||||||||||||||||||||||
| Efficiency ratio | 65.68 | % | 64.17 | % | 62.19 | % | 60.02 | % | 64.16 | % | 64.02 | % | 64.29 | % | ||||||||||||||||||||||||||||||
Pre-tax, pre-provision adjusted earnings (b - a) | $ | 9,692 | $ | 10,012 | $ | 10,609 | $ | 11,720 | $ | 9,329 | $ | 30,312 | $ | 26,677 | ||||||||||||||||||||||||||||||
| Average total assets | $ | 2,608,198 | $ | 2,621,340 | $ | 2,577,164 | $ | 2,603,745 | $ | 2,540,735 | $ | 2,602,347 | $ | 2,357,792 | ||||||||||||||||||||||||||||||
| Pre-tax, pre-provision adjusted return on average assets | 1.49 | % | 1.53 | % | 1.65 | % | 1.80 | % | 1.47 | % | 1.55 | % | 1.51 | % | ||||||||||||||||||||||||||||||
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ADJUSTED NET INTEREST MARGIN
“Adjusted Net Interest Margin” is a non-GAAP measure representing net interest income excluding the fees in lieu of interest and other recurring but volatile components of net interest margin divided by average interest-earning assets less average net PPP loans, if any, and other recurring but volatile components of average interest-earning assets. Fees in lieu of interest are defined as prepayment fees, asset-based loan fees, non-accrual interest, and loan fee amortization. In the judgment of the Company’s management, the adjustments made to net interest income allow investors and analysts to better assess the Company’s net interest income in relation to its core client-facing loan and deposit rate changes by removing the volatility that is associated with these recurring but volatile components. The information provided below reconciles the net interest margin to its most comparable GAAP measure.
| (Unaudited) | For the Three Months Ended | For the Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | September 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||
| Interest income | $ | 24,014 | $ | 24,599 | $ | 23,806 | $ | 25,770 | $ | 22,276 | $ | 72,420 | $ | 68,408 | |||||||||||||||||||||||||||
| Interest expense | 2,791 | 2,947 | 2,943 | 3,258 | 3,655 | 8,682 | 13,850 | ||||||||||||||||||||||||||||||||||
Net interest income (a) | 21,223 | 21,652 | 20,863 | 22,512 | 18,621 | 63,738 | 54,558 | ||||||||||||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||||||||||||||
Fees in lieu of interest | 2,839 | 3,536 | 3,085 | 4,749 | 1,511 | 9,459 | 4,566 | ||||||||||||||||||||||||||||||||||
PPP loan interest income | 221 | 566 | 603 | 718 | 833 | 1,391 | 1,481 | ||||||||||||||||||||||||||||||||||
FRB interest income and FHLB dividend income | 212 | 192 | 158 | 188 | 167 | 563 | 602 | ||||||||||||||||||||||||||||||||||
| Add: | |||||||||||||||||||||||||||||||||||||||||
FRB PPPLF interest expense | — | — | — | 9 | 26 | — | 44 | ||||||||||||||||||||||||||||||||||
Adjusted net interest income (b) | $ | 17,951 | $ | 17,358 | $ | 17,017 | $ | 16,866 | $ | 16,136 | $ | 52,325 | $ | 47,953 | |||||||||||||||||||||||||||
Average interest-earning assets (c) | $ | 2,460,567 | $ | 2,483,447 | $ | 2,425,499 | $ | 2,441,735 | $ | 2,374,891 | $ | 2,456,633 | $ | 2,205,798 | |||||||||||||||||||||||||||
| Less: | |||||||||||||||||||||||||||||||||||||||||
| Average net PPP loans | 87,517 | 229,165 | 242,242 | 282,259 | 323,082 | 185,741 | 192,451 | ||||||||||||||||||||||||||||||||||
Average FRB cash and FHLB stock | 129,469 | 68,503 | 36,643 | 45,611 | 33,756 | 78,545 | 46,925 | ||||||||||||||||||||||||||||||||||
Average non-accrual loans and leases | 11,298 | 16,744 | 22,069 | 36,013 | 26,931 | 16,657 | 24,849 | ||||||||||||||||||||||||||||||||||
Adjusted average interest-earning assets (d) | $ | 2,232,283 | $ | 2,169,035 | $ | 2,124,545 | $ | 2,077,852 | $ | 1,991,122 | $ | 2,175,690 | $ | 1,941,573 | |||||||||||||||||||||||||||
Net interest margin (a / c) | 3.45 | % | 3.49 | % | 3.44 | % | 3.69 | % | 3.14 | % | 3.46 | % | 3.30 | % | |||||||||||||||||||||||||||
Adjusted net interest margin (b / d) | 3.22 | % | 3.20 | % | 3.20 | % | 3.25 | % | 3.24 | % | 3.21 | % | 3.29 | % | |||||||||||||||||||||||||||
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